Revision Shows Slower Growth Rate
The U.S. economy grew more slowly in the first quarter than had been thought, and the Bush administration predicted Friday that the current quarter likely would be worse.
Meanwhile, a closely watched barometer of consumer confidence rose for the second month.
The Commerce Department reported that gross domestic product--the country’s total output of goods and services--grew at an annual rate of 1.2% from January to March, slightly down from the initial government estimate.
Lawrence Lindsey, the president’s top economist, told reporters he believed the economy was growing at an even weaker 0.6% rate in the current April-June quarter, based on his review of economic data that has been released so far. That view is in line with many private economists, who have put growth at about 0.5% for the second quarter.
Lindsey said the year-long slowdown in growth would have a significant impact on government revenues. He said it could reduce the administration’s surplus estimate for this year, which was put at $284 billion in April, down to about $200 billion.
But Lindsey said he believed the country would be able to avoid a recession, in large part because of the impact of the Federal Reserve’s interest rate cuts and the stimulative effects of the president’s $1.35-trillion tax cut.
“The key thing that needed to be done was put a floor under the economy, and we have succeeded in doing that,” Lindsey said, referring to the Bush tax cut.
The government’s final reading on first-quarter GDP showed the economy growing a tad more slowly than the 1.3% rate estimated a month ago. The government originally reported that the economy grew at a 2% rate in the first quarter.
Friday’s report also showed that U.S. companies’ profits in the first quarter posted their biggest decline in three years, reflecting the impact of higher energy and labor costs and slower sales. After-tax profits fell by 6.2%, following a 4.3% drop in the fourth quarter.
According to the University of Michigan, consumers are cautiously optimistic about the economy. The university said consumer sentiment in June rose to 92.6 from 92 in May. The report also said consumer expectations rose to 86.9 in June from 85.4 in May. The reading had been 84.9 in mid-June.
